10 things you should know about notice periods and notice pay

Most employment contracts can be ended by either party serving notice to terminate them. How much notice is required is usually set out in the contract of employment. If the contract does not specify, then statute steps in.

Here are 10 things all employers should know about notice periods and pay. It’s important to understand the rules to avoid disputes.

1. Statutory minimum notice

The Employment Rights Act 1996 (s86) sets minimum notice periods to be given to employees:

• Less than 1 month’s service: No notice required.
• 1 month to 2 years’ service requires 1 week’s notice
• 2 years or more: 1 week per year of service, up to 12 weeks after 12 years.

Employees must give 1 week’s notice after one month of service. Longer contractual notice periods override statutory minimums.

2. Notice pay during sickness absence

Employees under statutory minimum notice receive full pay during their notice period, even if they are off sick. For longer contractual notice periods, sick pay terms (e.g., SSP or company sick pay) apply.

3. Fixed-term contracts

Fixed-term contracts end on a specified date or event. If terminated early, notice provisions (e.g. break clauses) in the contract will apply.

4. Contractual notice and termination

Employment contracts should ideally explicitly define notice periods, including:

• Length of notice for both parties
• Rights to Pay in Lieu of Notice (PILON)
• Garden leave provisions
• Termination without notice for gross misconduct

5. Pay in lieu of notice (PILON) clauses

A well-drafted PILON clause should state that payment in lieu is not a right, it is an option available to the employer. It should specify what is included in the payment (for example, whether basic salary only is payable or whether other benefits will also be paid in lieu). If no PILON clause exists, payments in lieu of notice will be a technical breach of contract and will need to include a sum equivalent to contractual benefits and other payments such as bonus as well as basic pay.

6. Garden leave

Garden leave keeps employees on payroll but away from work during their notice period, ensuring control over their activities and preserving business interests. A contractual clause is needed to be able to do this lawfully.

7. Dismissal without notice

Employees committing gross misconduct may be dismissed without notice or pay in lieu of notice. This requires evidence of a fundamental breach of contract.

8. Communicating notice

Notice should be communicated clearly and, ideally, in writing. Best practice is to use traceable forms like email to avoid disputes. Contracts of employment often include clauses setting out how notice must be given – this should be checked before any correspondence is sent.

9. Legal claims and underpayments

Failing to pay notice correctly may lead to claims for wrongful dismissal or unlawful deductions. Employees can seek damages via employment tribunals or courts, depending on the claim’s value and complexity.

10. Special cases

In rare instances, courts may prevent employers giving notice to terminate contracts where it would cause significant harm to the employee, such as loss of key benefits (as happened in Aspden v Webbs Poultry, where an employer was prevented from giving notice when, in so doing, it would have removed an employee’s entitlement to permanent health insurance).

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